Author: Rob Tamburri

We have been fielding many questions from clients and the community about what we expect under the new Trump Administration. Although it will be early 2017 before we get any specifics on the future pending legislation, Trump has made various announcements about the scope of his overall tax plan- which will be of similiar magnitude of the Tax Reform Act of 1986. In the first of a few posts- child care expenses are of a great concern to many of our clients. Key highlights include:

New Above-the-Line deduction and a new tax-preferred savings account to encourage families to set aside funds for caregiving expenses

New Above-the-Line Deduction will now cover up to four (4) children per family from birth to age 13 with the deduction capped at “the average cost of child care” based on he child’s age and state of residence. The deduction would be available to itemizers and non-itemizers and would apply to families that use paid child care providers as well as families that rely of a stay-at-home parent or unpaid relative to meet their child care needs

The deduction would be limited to couples earning up to $500,000 a year and individuals earning up to $250,000.

Familys will no income tax liability will potentially receive assistance though a “spending rebate” through the earned income tax credit capped at “half the payroll taxes paid by the taxpayer” (lower earning parent) and subject to a limitation of $31,200 for an individual or $62,400 for joint filers.

A similar above-the-line deduction would be available for home care or adult day care for elderly dependent relatives – current proposed would be a cap of $5,000 a year, indexed for inflation.

These proposals are a major change from the current code which offers a small tax credit of based on spending of up to $3,000 per child, max of $6,000 subject to declining percentages.

With Donald Trump as the president elect and Republicans holding a majority in the U.S. House and Senate, GOP tax reform appears likely in 2017. While campaigning, Mr. Trump promised big tax changes. Here’s a digest of his proposals, according to his website.

Individual Tax Rates and Capital Gains Taxes

For individuals, President-elect Trump proposes fewer tax brackets and lower top rates: 12%, 25% and 33% — versus the current rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The tax rates on long-term capital gains would be kept at the current 0%, 15% and 20%.

Proposed Rate Brackets for Married-Joint Filing Couples

Taxable Income

Rate Bracket

Less than $75,000

12%

More than $75,000 but less than $225,000

25%

More than $225,000

33%

Proposed Rate Brackets for Unmarried Individuals

Taxable Income

Rate Bracket

$0 to $37,500

12%

More than $37,500 but less than $112,500

25%

More than $112,500

33%

The proposed plan would eliminate the head of household filing status, which could prove to be a controversial idea.

The president-elect’s plan would cap itemized deductions at $200,000 for married joint-filing couples and $100,000 for unmarried individuals.

The standard deduction for joint filers would be increased to $30,000 (up from $12,700 for 2017 under current law). For unmarried individuals, the standard deduction would be increased to $15,000 (up from $6,350).

The personal and dependent exemption deductions would be eliminated.

Child and Dependent Care

Proposed new deduction: The Trump plan would create a new “above-the-line” deduction (meaning you don’t have to itemize to benefit) for expenses on up to four children under age 13. In addition, it would cover eldercare expenses for dependents. The deduction wouldn’t be allowed to a married couple with total income above $500,000 or a single taxpayer with income above $250,000. The childcare deduction would be available to paid caregivers and families who use stay-at-home parents or grandparents to provide care. The deduction for eldercare would be capped at $5,000 annually, with inflation adjustments.

Rebates for child care expenses: The proposed Trump Plan would offer new rebates for childcare expenses to certain low-income taxpayers through the Earned Income Tax Credit. The rebate would equal 7.65% of eligible childcare expenses, subject to a cap equal to half of the federal employment taxes withheld from a taxpayer’s paychecks. The rebate would be available to married joint filers earning $62,400 or less and singles earning $31,200 or less. These ceilings would be adjusted for inflation annually.

Dependent care savings accounts: Under the proposed plan, taxpayers could establish new Dependent Care Savings Accounts for the benefit of specific individuals, including unborn children. Annual contributions to one of these accounts would be limited to $2,000. When established for a child, funds remaining in the account when the child reaches age 18 could be used for education expenses, but additional contributions couldn’t be made. To encourage lower-income families to establish these accounts for their children, the government would provide a 50% match for parental contributions of up to $1,000 per year. Dependent Care Savings Account earnings would be exempt from federal income tax.

Affordable Care Act Taxes

President-elect Trump wants to repeal the Affordable Care Act and the tax increases and employer penalties that it imposes — including the 3.8% Medicare surtax on net investment income and the 0.9% Medicare surtax on wages and self-employment income.

Estate Tax

His plan would also abolish the federal estate tax. But it would hit accrued capital gains that are outstanding at death with a capital gains tax, subject to a $10 million exemption.

Business Tax Changes

The president-elect proposes major changes to the taxes paid by businesses. Trump would cut the corporate tax rate from the current 35% to 15%, but eliminate tax deferral on overseas profits.

Under the proposed plan, a one-time 10% tax rate would be allowed for repatriated corporate cash that has been held overseas where it’s not subject to U.S. income tax under current rules.

The plan would also allow the same 15% tax rate for business income from sole proprietorships and business income passed through to individuals from S corporations, LLCs, and partnerships, which could cause a significant decrease in tax revenues.

Without getting very specific, the proposed plan proposes the elimination of “most” corporate tax breaks other than the Research and Development (R&D) credit. At-risk tax breaks could include unlimited deductions for interest expense and a bevy of other write-offs and credits.

On the other hand, the proposed Trump plan would allow manufacturing firms to immediately write off their capital investments in lieu of deducting interest expense.

What about Congress?

In addition to President-elect Trump’s proposed plan, House Republicans released the “Better Way Tax Reform Blueprint” earlier this year and Republicans in the Senate proposed their own tax plans. These proposals — which in some cases, differ from Trump’s — would make numerous changes to cut taxes and simplify filing. Despite some differences, members of Congress have expressed support for Trump’s plans and have vowed to act quickly.

When Might Changes Happen?

Democrats in Washington are likely to oppose any meaningful tax cuts, and they can attempt to stall things in the Senate where the Republicans won’t have a filibuster-proof majority. However, the Republicans can use the same procedural tactics that the Democrats used in 2010 to enact the Affordable Care Act. It’s possible that Trump’s tax plan (or parts of it) may pass in the first 100 days of his new presidency. If that happens, we could see major tax changes taking effect as early as next year.

On Tuesday November 22,2016 a federal court issued a preliminary injunction to temporarily block the U.S. Department of Labor (DOL) from implementing and enforcing its Final Overtime Rule nationally, pending further review by the court. What does this mean currently?

As a result of this ruling, employers do not need to comply by the original December 1 effective date

The injunction is temporary pending further review by the court

We have no additional information if or when the status of the regulations will change.

Balog+Tamburri CPAs will continue to monitor this situation and will keep everyone updated accordingly

The IRS has increased the maximum threshold for expensing certain capital items under the De Minimis Safe Harbor from $500 to $2500. The increase is in reponse to CPA comments that the $500 limitation was too low to effectively reduce the adminitrative burden of capitalizing the cost of many commonly purchased items such as furniture, computers, phones, and small equipment. This rule goes into effect tax years on or after January 1, 2016. Furthermore, if taxpayers are using a threshold higher than $500 but less than $2500 for tax years beginning after December 31, 2011 and ending before January 1, 2016 the IRS will not focus on this issue in an examination. Please contact us if you have questions or want specifics to your situation. This post is designed to provide a basic overview.

As we review current tax law for late year changes we will be doing a series of blog posts to remind taxpayers that there are a few income sources which might impact your personal tax situation which remain completely tax-free to you (although some are reportable but not taxable)

How many people have heard about an urban legend in the tax code called “The Masters Exemption”? (think Augusta, GA) The good news is this legend is true! Situations where your property (primary or vacation home) is rented for 14 or fewer days is completely tax-free to the taxpayer (without any depreciation or maintainance deductions though) regardless of the amount! Between the hot film industry in Georgia, combined with major sporting and music events these opportunities provide a major possible windfall to the homeowner.

Please note that the title of the blog post only mentions the IRS unfortunately. Generally any short-term rental has state and local tax obligations and state governements continue to use better techonology to track these types of rentals.

Just a reminder these are rentals of your primary home or second/vacation home not considered an investment property

Next blog post we will talk about when selling your primary residence will result in a zero federal tax bill.

We just wrapped up tax extension season for 2014 partnership and corporate returns. I thought it would be a good time to remind our readers common “themes” we see each year with business tax preparation.

All Start-Up Costs are Immediately Deductible- Costs incurred before your business opens their doors range from advertising, travel, training etc. These costs include organizational matters such as legal fees and state licensing. Since tax year 2011, you are only allowed to deduct up to $5,000 of business start-up and $5,000 or organizational costs incurred after October 2004. Each of these $5,000 amounts are reduced when your total start-up or organizational costs exceed $50,000. All remaining costs must be amortized Additionally, equipment costs are recovered through depreciation or Section 179 expensing.

Requesting an extension on your taxes includes an extension to pay- This is one of our firm favorites, tax payments are always due April 15 of each tax year (or March 15 for C Corps). Extensions are for paperwork only, penalties and interest accrue accordingly

Incorporation enables the most deductions- The answers here remain in understanding your business structure in the first place. Countless clients walk in our doors and don’t have any clear rationale on why their business is a Schedule C, S Corp or LLC. The plot thickens when we inform them that IRS doesnt recognize LLCs and through lack of planning, can potentially increase your accounting and tax expenses with little benefit e.g. have you factored in your future plans of adding members or shareholders and how profits and losses will be split?

S Corps with no salary- IRS code requires shareholders to take “reasonable compensation” as an employee of your corporation. All distributions are a red flag for an audit. Additionally track capital contributions and have paperwork for all loans booked accordingly on your software

Business Use of your Auto- A travel log of business miles must be maintained during the calendar year and this includes commuting and personal use of the auto/truck. Second, you typically get to select between business mileage reimbursement under IRS guidlines or deductions of actual expenses (gas, deprecation, brake job) based on pro rata business use of your vehicle. It matters whether your lease and typically its best to use the mileage allowance in year one for reasons beyond the scope of this blog post.

Contact us with questions and start getting organized if your personal return is on extension!